Abstract
We present an analysis of price systems in securities markets with infinitely many time periods and infinitely many uncertain states of the world. A key result is that a Markov price system (MPS) has a unique representation in terms of the returns on a known set of bonds. The result implies that securities prices are the discounted value of dividends, where discount factors are the reciprocal of the returns on a long-horizon discount bond.
| Original language | English |
|---|---|
| Pages (from-to) | 85-91 |
| Number of pages | 7 |
| Journal | Mathematical Finance |
| Volume | 8 |
| Issue number | 1 |
| DOIs | |
| State | Published - 1 Jan 1998 |
Keywords
- Ergodicity
- Incomplete markets
- Long bond returns
- Markov process
- State prices
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Cite this
Tessitore, A., & Usmen, N. (1998). Ergodicity, state prices, and long bond returns. Mathematical Finance, 8(1), 85-91. https://doi.org/10.1111/1467-9965.00046